Impact of Green Supply Chain on Organizational Performance

by Shamsul
Green Supply Chain
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Impact of Green Supply Chain on Organizational Performance

 

Introduction

The spectacular development of technologies and sales techniques has greatly caused the overconsumption of industrial products, especially high-tech products whose life cycles are increasingly short (Ahi and Searcy, 2013). On the other hand, this development has led to increased consumption of raw materials and energies as well as to the growth of the quantities of greenhouse gases and of waste in landfills. So, the Importance of Green Supply Chain is crucial on Organizational Performance

The rapid economic growth of emerging countries like China and India along with changes in their lifestyles will aggravate the problem. Awareness of the planet’s ecological problems has taken on a global dimension since the UN Conference on the Human Environment, held in Stockholm during1972 in the capital of Sweden. The years that followed saw the birth of an international environmental movement. Long separated, questions of economy and ecology have become linked to define what is called “sustainable development.”

 

The Logistics Chain and the Concept of Sustainable Development

Ever since its inception in the early years of the 1990s, the idea of “supply chain management” is established itself as a key driver of corporate competitiveness. Initially, this concept was only functional management of each activity of the industrial company to become, at the beginning of the year 1990, a logistics chain integrating a greater number of business partners upstream or downstream of a business (Bechtel and Jayaram, 2007). The supply chain can be represented by a sequence of activities starting with the supply of raw materials and ending with the delivery of the finished product to the consumer (figure 1). Supply chain management thus pursues an objective of integration, not only by sharing information between its partners but also by continuously reviewing value-added activities (Christopher, 1998). Globalization has enforced most organizations to remain at least a part of one supply chain the result of which is that there is increasing competition amongst the existing supply chains instead of insulated companies (Gold, Seuring and Beske, 2009).

Figure 1: Traditional supply chain representation (Chouinard, 2007)

Thus, in the context of market globalization, the main objective of supply chain management is the creation of value which is based upon the premise that an integrated and effective supply chain subsidizes the minimization of financial risks and to increased profits (Fawcett, Magnan & McCarter, 2008). Therefore, the business models that are implemented by industrial companies involve logistics chains within which the raw materials are changed into finished products using non-renewable technologies and energies, and then transported to the end consumer, regardless of the disposition of the products. Along with the economic challenge, sustainability has been seen as a second major challenge for companies in recent years (Kleindorfer, Singhal and Van Wassenhove, 2005). The operationalization of sustainable development in the company is reflected in the corporate social responsibility approach (Boukherroub, 2013). The relationship between supply chain management and sustainability is more approached from an environmental perspective using different terminologies such as green sourcing, responsible product stewardship, reverse logistics, and chain management green logistics (Vachon and Mao, 2008).

Traditionally, the regulations governing environmental aspects have been seen as equal to that of additional costs and consequently seen as a barrier to a company’s competitiveness. The hypothesis of Porter and Van der Linde (1995) states that “in case there are strict environmental regulations however they are flexible and can be adapted; the restrictions created tends to encourage innovation and may sometimes improve the level of competitiveness of the business”. In their statements, the authors quoted some cases in which firms that were in alignment with environmental laws saw their profits increase. It is therefore not surprising, in this context, that the sustainability of the company has gradually extended to logistics networks through pressure from stakeholders (customers and shareholders). Vachon and Mao (2008) claimed that there is a considerable relationship between the strength of the supply chain and environmental innovation and which also supports the hypothesis of Porter and Vander Linde, (1995).

Indeed, today in the context of sustainable development and for several reasons such as the economic advantages that the recovery of certain products used, the government legislation, and growing consumer demand for environmentally friendly products, several pioneer companies have felt the need to review the management strategy of their supply chains in order to integrate end-of-life product processing activities and reduce as much as possible environmental impacts. The classic linear model of the supply chain is therefore gradually giving way to a cyclical model through which the recovered products are reinjected into the traditional supply chain to build a value loop. Thus, the concept of the circular economy seems to be the most recent practice of sustainable development and is defined, according to ADEME (2014) as “an economic structure of production and exchange which, at every phase of the life cycle of the product, seeks to escalate the efficiency regarding the usage of resources along with reducing the impact over the environment”

Green supply chain management can then be seen as integrating environmental concerns within the supply chain management (Sarkis, Zhu and Lai, 2011). The term “green” has become more and more abundant, it can have several meanings depending on the perceptions of its users, but all refer to the environment (Boks and Stevels, 2007). The concept of “green supply chain” has been initially suggested by the University of Michigan Manufacturing Research Consortium in 1996, in view of evaluating the different environmental influences and the optimization of resources of manufacturing supply chains (Hanfield, 2016). The key motivations for the implementation and management of the green supply chain can be grouped into 4 distinct categories (Zhu and Sarkis, 2004; Walker, Di Sisto and McBain, 2008): regulations, the search for a competitive edge, pressure from that of the stakeholders and internal company innovation. The level of these motivations with respect to their importance is difficult and is dependent upon various factors like the country, the field of activity, and the size of the companies studied.

In the Canadian aspect, a recent study reveals that the companies that have implemented practices of green products such as reduced consumption of energy, packaging, and waste have reported improvement in terms of reducing their distribution costs, customer loyalty, and opportunities to access foreign markets (Industry Canada, 2009). Today, companies are increasingly proactive when it comes to environmental sustainability. The results obtained have been confirmed by the results of a current survey undertaken over 582 European companies. The results clearly show in Figure 2 that regulation is no longer seen as the most important motivation for the establishment of sustainable actions and instead gives way to corporate branding and management leadership. According to research carried out by Zhu and Sarkis (2006), there always is an impact on the environment at every stage of the product life cycle, from the extraction of raw materials to the discarding of the product after its consumption (Solvang and Hakam, 2010; Andiç, Yurt, and Baltacioglu, 2012).

Figure 2: Motivations for the implementation of green practices (Bearing Point, 2010)

Green supply chain management processes

Within the green supply chain, various procedures tend to combine as well as complement each other so as to assure the product delivery to that of the end consumer as well as its return after use. These processes vary according to the business sectors of the company and link one link with another or with several links in the network. Stadtler (2002) subdivides supply chain management into two distinct parts: integration as well as the coordination of the network of the various flows. Network integration involves the choice of organization, partners, management, and collaboration within the network. Network coordination tends to constitute planning along with the control processes of the chain along with the process of information sharing and the technologies that are used for this purpose. Lambert and Cooper (2000) describe the different processes defining the management of a supply chain. The transversal functions allowing the management of flows and the integration of the basic functions of a company in a supply chain are:

  • customer service management
  • customer relationship management
  • demand management;
  • order management;
  • production flow management;
  • product development and marketing;
  • supplier relationship management;
  • reverse flow management (recycling, after-sales service)

in order to further illustrate the major processes within a green supply chain, the GreenSCOR model is rendered to be an example (SCC, 2006), illustrated in figure 3. This model assumes that the supply chain is divided into four processes: planning, green procurement and manufacturing, green logistics, and carbon management

Figure 3: Green supply chain management processes (SCC, 2006)

Planning

is a process aimed at organizing other processes in the supply chain? At this level, the strategic decisions for the configuration of the integrated closed-loop logistics network and the ecodesign of products are determined

Paquette (2005) states that key variables which can influence the environmental performance of a system or product are determined in this planning phase of the supply chain.

 

Supply procurement

Mainly because of its upstream position within the logistics chain, the “supply procurement” process plays an essential strategic role; it is able to prevent when selecting suppliers and service providers, the transfer of goods, environmental risks of raw materials and acquired products.

 

Green manufacturing

The “manufacturing” process encompasses the processing of raw materials and the assembling of that product. In order to assure the implementation of green manufacturing, businesses should focus on improving their manufacturing procedures by working through the triangle which comprises three main elements: energy, technology, and materials.

 

Green distribution

The “deliver” procedure comprises two sub-procedures: transport and storage.

  • Green transportation. This assures the movement of the material flows from that of the supply chain. Nevertheless, this sector does hold a huge impact on the environment, for example, freight transport accounts for around 14% of total industrial emissions
  • Green storage. The logistics buildings have a very important role in the management of flows both upstream as well as downstream of the logistics chain, it also ensures storage along with other order finishing operations (packaging, labeling, etc.). The objective of green storage is primarily to plan logistics buildings in compliance with eco-construction standards (eg, standard NF EN 15643-1) which reduces environmental impact. Business warehouses can be built using materials such as wood and can operate with alternative and renewable energies such as solar and wind energy
 

Reverse logistics/ Carbon management

The ‘return’ process is the last process in the green supply chain. It allows the closure of the value loop through the extension of the product lifecycle to allow its reuse (Fleischmann, 2001).

 
 

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References

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